Morningstar | KKPNY Updated Forecasts and Estimates from 18 Dec 2018
KPN is the incumbent telecom operator in the Netherlands and is starting to show signs of growth. In 2014, the firm sold its E-Plus division in Germany to Telefonica and in February 2016, it completed the sale of Base--its Belgian operation--to Liberty Global for EUR 1.325 billion. These deals strengthened the balance sheet even after paying out some of the proceeds in special dividends.Increased competition and changes in customer behavior have pressured KPN's sales in the Netherlands. Its traditional consumer fixed-line business has been shrinking rapidly for years, as cable competition has been particularly strong and has increased with the creation of Liberty Global's joint venture with Vodafone in the Netherlands, named VodafoneZiggo. However, KPN is having some success bundling television and broadband services with its phone business. This has worked especially well in areas where the cable operator only has analog service. Providing the Spotify music service free to premium customers has also been a successful marketing tool. KPN now has about 29% of the digital pay-television market. It is also rolling out fiber to increase broadband speeds to help it compete. The wireless business added subscribers in 2014 for the first time since 2009, and average revenue per user increased slightly in 2015, which allowed revenue growth in the division. KPN has intentionally focused on higher-end subscribers with higher data usage, which has helped offset declines in voice pricing. However, the consumer business has struggled since the initiation of “Roam-Like-At-Home†by European regulators. With the company now having lapped the introduction of this policy change, we anticipate the consumer business will return to revenue growth.The business sector though, continues to struggle. While management expects this segment to reach stability in the medium term, we believe it will take longer. On the enterprise side, we think KPN is too small to compete with larger global peers like AT&T, BT Group, and Orange, while on the small and midsize business side, it will increasingly compete with VodafoneZiggo. Thus, we remain skeptical regarding stabilization of this division.
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